Today my Dad called me up and asked if I would be interested in applying for a new mortgage on his house he’s been in for a while. He lost his business a while back and has a much lower source of income now, and his wife also has a pretty meager paying job. Together, they just aren’t making it. Unfortunately, he cannot qualify for HARP until September at the earliest for some reasons, and he says he can’t make it until then. They’ve been exhausting every possible avenue, and there isn’t much equity in the house either at this point so selling it is kind of a last resort, though it at least has a few thousand in equity and wouldn’t be a short sale. He also doesn’t have enough monthly income to qualify for a refinancing on his own, hence why he asked me.
So, I turn to you. What kind of things should I be considering and thinking about before I commit to this? It will be my first mortgage ever. I’m still paying on a car loans and student loan and will be for years. I don’t have any credit card or other revolving debt though. I live pretty comfortably and am also contributing to a 401K at a good clip and have a few thousand in that retirement account, plus a few thousand in my checking accounts. I will be 27 years old in May, if that matters.
What would be the best reasons to do this, and what would be the best reasons not to do this?
Some negatives I’m thinking of, for example, is that I’m concerned that getting on his mortgage I’m not going to be able to get my own someday maybe in 5-10 years when I want my own house. I don’t know much about mortgages but I really doubt a bank is going to want to undersign me for a new loan if I’m already on the mortgage for another house unless I have tons of assets or a high income (neither are true). I’m also concerned about being able to make the $1000 payments should he and his wife suddenly lose all income or whatever. I could technically afford the mortgage on my own but it would mean cutting way down on what I am paying back on my other loans… it wouldn’t be pleasant.
Some positives I am thinking about is that getting on a mortgage and making regular payments will be a boon to my credit score and credit history over time. Another positive, at least as my Dad pitched it to me, is that I’ll be making an investment with each month on however much I pay and that when they pass on, the house will be all mine (muahaha) or if the house comes up for sale while they are still alive, I’ll get a portion of the sale or however that works. Also of course I’m helping my Dad and stepmom during a difficult time which is the most important positive (warm fuzzies).
Anyhow, any and all advice is appreciated. If you all need any more info let me know.
I am not your father. However, I am old enough to be your father. If one of my children came to me with this idea, I would strenuously try to dissuade them, and advise them to focus on their own debts first.
When you get to the point where you can drop $1,000 a month without it being a major hit to your own finances, then you can consider being responsible for someone else’s debt (which is what being a co-signer really boils down to.)
Until then, why don’t you offer to give your father $500 a month until they can refinance or get their heads above water? Let them leave you the house in their will.
I agree. You can help your dad through a tight spot without obligating yourself on the mortgage. Maybe he’ll be eligible for HARP or something similar in a few months.
If your dad just needs help until September when he qualifies for Harp, don’t entangle yourself for 30 years.
Have him talk to his mortgage company and see if he can skip a Payment or two They can put it on the end of the mortgage. That will put them a little ahead. Then you can give them some money every month til september.
Give us more information on the details both about the refinancing and your parents current economic situation. What are payments now and what would they be after refinancing…
Basically a very large number of “loans” between relatives end up not being paid back. So it is much better to simply give them the money–that way you don’t get angry and the relationship damaged if you don’t get paid back.
Congrats on saving for retirement at your age. Compound interest is an awesome benefit.
That said, I always consider joint financial arrangements with family as gifts. If you want to make a gift of mortgage payments for 30 years, go for it. Otherwise do the $500 a month thing.
If you are able and willing to make the payment each month go for it otherwise I’d say its a nonstarter. Also you refer to your fathers wife as in she is your step mother. If anything happens to dad she will most likely get the house regardless of what your dad says.
What happens if you co-sign the loan and then dad dies? His wife gets the house and you are responsible for payments. Are you going to be on the deed? What happens if Dad can’t make any payments? Can you carry this thing, and still survive on your own?
I think that a bank would be reluctant to lend you money to buy your own if you are on the mortgage for this one. I’m not sure that it would help you when you buy since it will come up as a huge liability, and would be factored against your income.
How long have they been in the house? Do they only have a few thousand in equity because they haven’t had it for long, or because they remortgaged, or because house prices dropped significantly (and if so, are they expected to recover?).
If their plan is to stay in a house they can’t afford long-term, that sounds like it could be a very big investment on your part. And yes, it will hinder you from investing in your own living situation.
Honestly I think it is unfair for them to ask it of you. I can’t see any way it’s what’s best for your life, which is what they should want you to be focusing on.
Signing a mortgage with your father I feel is a bad idea. If they are struggling to make ends meet now, they will continue to do so.
My main concerns are:
Do you and he see his income raising in the future?
When he can refinance, what percent of the mortgage payment will be of their combined income?
what other kinds of Debits does he have? if he has a car, credit card, or other loans?
How well do they budget and manage their money?
If you see his income growing in the near future, help him out with a monthly cash gift.
If the mortgage payment is going to be a large chunk of their monthly income, and no reasonable income increase in the future, best he look at selling the house and renting inexpensively.
If they have lots of other debts, those need to get cleaned up, if they can be cleaned up quickly and doing so will help him have room to pay bills, help him out with cash gifts to get him thru the rough patch.
If they do not cannot budget money well, that puts the possibility of Murphy knocking them behind even further. (hot water heater breaks, roof leaks, plumbing issues)
Signing on the mortgage leaves you on the hook, if the mortgage does not get paid on time, or not at all.
I would not co sign anything I was not able to and will to pay myself.
If I were in your shoes, give them what support you can, money or encouragement, Sounds like your dad has been punched in the gut, losing a business and I am sure having to come ask you for help was not easy. Good news, he knows what it takes to work hard, and years of experience, traits looked for by employers.
I agree with the others.
If you want to, you could sign an agreement that ensures you are the sole inheritor of the house, but don’t go on the mortgage - simply promise to pay $500/month (as if you were a roommate or something) and that will immediately lower his payment INSTEAD of starting a brand new 30 year agreement!
If he should default, or whatever, this would be a huge hit on your credit. Yes, you could certainly still buy a house someday, but they might give you a higher interest rate due to that past default.
So do NOT co-sign the mortgage. Your father should be thrilled if you paid half (or even a third) as that would be far, far better than any new mortgage payments he will have to make. Now he knows his Social Security or whatever, plus your monthly payments, are enough to keep him in the house. A much saner approach - and keeps you high and dry if anything else should happen.
BTW, the lifespan of adults is advancing rapidly - and although I don’t know your dad or his health, it is not uncommon for people to live to their 90’s or even 100’s now…so that is a very long time to wait for this inheritance of a house that might be worth little or nothing at that time.
Part of me wonders if you even have the credit to qualify for a mortgage.
I remember when my wife and I were buying our house, my wife didn’t have enough lines of credit to qualify, so the mortgage is in my name only (hope we don’t divorce!).
I mean, you probably do, between the car loans, student loans, and utilities, but then the bank might wonder if your debt to income is too high.
Of course, I could just be a worrywart. But then, that might be a good explanation to your dad why you can’t co-sign “oh sorry dad, bank says I don’t have enough credit to co-sign. I can help with a payment or two though” will probably keep this from being brought up again.
Your father may be a wonderful human being but he is a poor money manager or he would not be coming to you in the first place. You need to place this understanding at the center of all considerations re getting yourself involved in long term obligations with him. His financing ideas are bad ideas. That he considering asking his 27 year old son to take on the huge credit burden of a residential mortgage on a house with minimal equity so he can hang onto his house is clear evidence of just how bad his financial decision making is.
He is desperate to hang onto a house he cannot afford. I’ve seen people in these circumstances, they will reach out to others in desperation calling in every favor they can muster, but in the end in almost every circumstance all monies loaned to keep them going are lost as their downward financial spiral rarely reverses itself.
Your father and his wife need to sell the house and be in an affordable seniors apartment. This is a huge lifestyle change and it’s not what he wants, but it’s probably what is eventually going to have to happen.
A few points -
1: You may not even qualify for a mortgage however if you do >
2: People these days routinely live into their late 80 and 90’s. This could easily be a 20-30 year commitment before they pass.
3: Yes, if you take on a mortgage, it will very seriously impact your credit. You will be locked out of approval for large (car house etc) loans with favorable interest unless your income increases very substantially.
4: People rarely make more money as they get older. You will be the horse pulling this cart for decades.
5: Re the HARP morgage you need to do some analysis on this. His income is is meager and not getting better in the near term. Will he even be able to afford that? A lot of people who had their residential loans restructured to much lower levels by banks still defaulted.
Would he be willing to sell you the house and then rent it from you at the cost of the the mortgage? You won’t get HARP rates, or even primary residence rates, but you’ll be able to sell the house at some point. It’s really the only thing he can do to protect you. And if they don’t have significant equity in the house, they need to think of their mortgage payment as their rent payment, so they can compare it to lower rent payments other places. They will not be able to sell this house and put a down payment on a smaller one, so this is their rent.
Is he really sure that his house qualifies for HARP? He would have to have a loan underwritten by either Fannie Mae or Freddy Mac, and it must have been sold to FM/FM before May 2009. There can’t be any late payments for 6 months and only one in the last year. The loan to value ratio must be greater than 80%. And they must prove they can make the new payments.
I haven’t seen anything about not quaifying until September, unless he’s had a late payment and needs to collect six months with no late payments. So if he’s having to wait “for some reason” and it’s because he’s made late payments, he’s not giving you the information you need to make this decision.
I’d like to confirm that the house usually goes to the spouse. We’ve had two properties in our family purchased with down payment loans from other family members that weren’t documented and that were then inherited by new spouses followed, in time, by the new spouse’s children. Even with your name on the mortgage, you may end up in a situation where all you can do to disentangle yourself is to default and take the hit on your credit rating while other people live in the house.
Interesting info everybody. I’ve ready everyone’s responses carefully.
The suggestion to just give him $500 a month is a nonstarter because even that amount of money wouldn’t offset things enough to allow them to make it, evidently. But, I’ll ask him about it as an option.
The HARP thing not being available until September probably does have to do with not having a recent late payment. Over the past year or so they had been trying different things to get a better mortgage on the house, and their own bank recommended they be late on a few payments so they might qualify for some sort of new loan or whatever. He says he is current now and has been for a few months, and that according to who he’s been talking to, the HARP loan will be available in September for him but no earlier.
I really do want to be able to buy my own house someday in the near future (probably within about 10 years)… and it sounds like becoming a cosigner on the house is going to prevent that.
He did say specifically that my stepmom is not currently on the lease nor is she interested in being on the lease. Currently he is the only one on the deed (I guess… unless it is the bank until the mortgage gets paid off, I don’t understand how these things work). But yes he did want to make sure that legally the house only belonged to me and him. His wife is not even interested in trying to get her name on it.
Right now the monthly payments are about $1600 a month. He says that a refinance could get the monthly payments down to about $1000 per month, and then I could pay about $200-$300 per month that would make it feasible for them to live there indefinitely on their incomes. Dad only makes about $1200 a month now (as opposed to about $4000 when he was running his business), which is why things are so difficult for them. My stepmom’s income helps just barely put them over the edge in being able to make the rest of the $1600 per month payment and keeping the lights on and some food on the table, but that’s it. They do not have any other debts. All the cars are paid off. No credit cards, etc.
The house only has a few thousand in equity because in Southern Oregon, housing prices took a huge plunge during the recession and really haven’t come back much at all. But at least he does have some.
If I read your post right, you’re saying that your father can really only afford a house payment of $700-$800, which means you’d have to pay about $800/mo. until he can get refinanced and then at least $200/mo. for the indefinite future. Doing quick math, it looks like you’ll have to pay $5,000 or so, just to get him through 2013.
I’m sorry for your father, but his idea is a financial nightmare waiting to happen. Your father has twice the home he can afford. There is no long-term solution that isn’t going to cost both of you more money than you can afford to lose, and may still end having to sell the house.
There is nothing in this additional information that indicates he has any hope of being able to make enough money to pay the mortgage, even a reduced mortgage of $ 1,000 a month. His income is so meager there is no way he is going to be able to stay in the house. One health or other unexpected expense speed bump for he or his wife and it all goes immediately into the ditch. If there is not solid a plan for substantial additional income in the near future he needs to be making plans that involve subsidized rental housing for seniors.
The bottom line is that based on the income stats for them you have given they simply don’t make enough to realistically afford the house. Unless you are prepared to (effectively) subsidize them for the next 20+ years @ around $ 1000. a month any money you contribute toward their current mortgage is literally money down the toilet.
They need to do a short sale and walk away to a modest apartment. You do not have the financial horsepower to easily carry this load, and the fact that he is looking to you for relief is hard evidence of just how bad and desperate his decision making on this issue is. Saddling my kid with a mortage so I can cling to house I cannot afford is not a wise move.
Plus, are you sure you would even be able to help? Given that he has recently been late on payments, his credit score is likely “not excellent”, which means even having him on a loan is probably gonna prevent you both from getting the best interest rate possible.
Second, I it would be pretty tough even getting a loan on a house with minimal equity regardless of your income. You may have the ability to pay, but a bank would want you to have significant equity to ensure that you would have some skin in the game. I may be possible to find someone to give you this loan, but it’s probably not gonna be on the best terms.
Third, are you getting he is getting those numbers from an actual bank? Take a look at this interest calculator. Starting at a payment of $1600, if we were to assume he has basically no equity, and that solely lowering his interest rate would save $600/month, then his interest rate must be impossibly high or his house must have lost a ton of money.
Regardless, I know it would feel really great to help your dad, but there is little honor in going down with the ship because of misplaced family loyalty.
Ok talked to Dad about it this morning and told him that I wouldn’t be doing that with him, but that I would be willing to offer giving him some cash as he needs it to try and stay in the house as long as possible.
You’ve gotten some great advice so far. I don’t think you should continue supporting him in this endeavor, though–you’re only throwing good money after bad. If I can slap you around a little (:p), is it going to do your dad any more good to get foreclosed on 4 months from now, rather than next month? I realize it’s not easy, mentally, to be older, possibly disabled, and feel like a burden on your kids. But I can’t think of a single good reason to prop him up in an excessive amount of house once he can no longer afford it. If your dad failed to plan properly for his retirement, then he needs to live more modestly, starting yesterday. Don’t enable him for another second. Although your heart’s in the right place, your dad needs to figure this out for himself. Maybe he could take on a couple renters. Maybe he doesn’t want to do that… welp, he’ll lose the house that much sooner. These are the choices that adults of sound mind and poor financial planning should *have to *make. Sorry, pops.
And just to show I’m not talking out of my ass, I’m anticipating a similar situation with my mom pretty soon here. She just went on disability within the last 6 months, so I know what it’s like when that “dependency” starts switching from child -> parent to parent -> child. My ma also made the ill-advised choice to buy a large, expensive house late in life, out in the boonies, really far from family. Not only can I not afford to give her money for the mortgage, but she has *consistently *undertaken less responsibility the more willing I’ve been to pick up her slack. It’s not like she doesn’t have the time or mental capacity to take care of things herself–she has nothing but time these days. So I’ve made myself less available and she’s become more independent, which is a win-win for our relationship and my sanity.
It’d be WAY different if your parents had dementia or alzheimer’s. I wouldn’t advocate tough love in those situations. But for someone of sound mind, offering *less *assistance will [del]encourage[/del]force them to become *more *independent. It’s like reverse-parenting, although I’m not as good at guilting my mom as she is at guilting me (yet! …lol). You can still offer moral support and help them research their options (moving to an apartment, taking on lodgers, etc). But a good parent would never ASK you to ruin your credit to prop up their impractical home.
